Why you shouldn’t listen to Peter Thiel about dropping out of college

Attention high school graduates with dreams of becoming a doctor: That’s a bad idea. Instead, become a plumber. You’ll make more money.

If you think that sounds crazy, that’s because it is. But that’s precisely the message noted investor and Libertarian Peter Thiel intoned on CBS 60 Minutes Sunday. It was only the latest blast against college degrees from Thiel, who sees education as a liability rather than an asset.

Thiel made this statement based on a 2011 calculation by Boston University economist Laurence Kotlikoff, which found that plumbers make more money than doctors, under very specific circumstances. Thiel, in particular, seems hell bent on pressing the issue in the face of all evidence that college is essential to economic success. By many key economic and health measures of well being — average lifetime earnings, average salary, average unemployment rates, average life expectancy— a college degree makes a significant difference.

Thiel’s basic message is simple. We’re in a massive college bubble. Getting a four-year degree is wildly overrated. There are many lucrative jobs for people who don’t get four-year degrees. Graduate degrees, he implies, may be an even worse idea. Rather than rely on a credential, we should pursue degrees in the school of hard knocks, start a business and make a million dollars. Or fail, then try to start another one and another one. And even if you don’t want to be an entrepreneur, there are many high paying vocations that don’t require a college degree.

For his part, Thiel argues that the people who succeed would have done so regardless of whether they went to college or not. I find that argument ludicrous, all the more so looking at the paths taken by some of the people in his own Thiel 20 Fellowship program, a widely publicized offer to pay young people $100,000 not to go to college and to instead pursue an entrepreneurial idea.

First, I tracked down Kotlikoff and asked him if he broadly agreed with what Thiel was saying. The answer is: It depends. His calculation used a complicated and powerful piece of software that he has helped develop and which predicts both earnings power and available income to spend over the course of a lifetime. He presupposed that the doctors went to elite institutions for undergraduate and graduate degrees and then worked in a lower-paying medical specialty such as pediatrics or general practice. And he assumed the doctors financed their entire education without scholarships or other assistance. The calculations also did not take into account the far greater likelihood that a plumber could be unemployed or injured on the job, either of which could prove catastrophic to his or her earning power.

Likewise, if the medical school grad had worked in a higher paying specialty, they would have obliterated the earning power of even the highest paid plumber (it doesn’t take many years with earnings of over $200,000 per year to catch up). Kotlikoff makes the valid point that progressive taxes, opportunity costs and Social Security all favor the plumber over the doctor. But even according to his findings, those doctors out-earned by plumbers represent a very small fraction of the medical profession.

Let’s take apart some other aspects of his argument. Thiel also argues the college students are incurring so much debt to gain their degrees that paying off the debt is a crippling burden that takes a huge chunk out of lifetime earnings. He states that college can cost as much as $250,0000, implying that the amount is the debt load all students must bear. But, according to the Project on Student Debt, the average college debt for the class of 2010 was $25,000. That’s nothing to sneeze at, but it’s hardly a crippling burden. To put that into perspective, the average amount financed for a new car purchased is $26,000 according to Experian Automotive statistics as reported by Bankrate.com. Even more important — and something conveniently not discussed by Thiel — the average earning power of college graduates has climbed steadily while the average earning power of those without college degrees has dropped precipitously. There is a lifetime of earnings to account for. University of Toronto‘s Martin Prosperity Institute calculatedthat, on average, bachelor’s degree holders earn $17,037 more per year than high school diploma holders.

So, while you might get lucky with that startup, the law of averages says that if you don’t go to college, you’ll probably end up significantly poorer. What was fascinating to me is that some of the young entrepreneurs Thiel bankrolled clearly benefited from partial college educations. It’s hard to imagine that the founder of the biofuels startup who was a Harvard pre-med before taking a Thiel Fellowship would have gained access to the resources he needed or been exposed to the mentorship of professors and the institutional creativity had he chosen not to go to college at all.

This is the reality: college is a formative place where creativity and ideas that turn into great companies thrive. It’s a giant R&D lab, a spectacular Petrie dish not just for scientists but for anyone who wants to learn more about the world and how to better navigate life after college. If you don’t believe that, then pick a profession that doesn’t require a degree and take your chances. You might have a nice solid life as a plumber. But the averages say, you’ll always be keeping up with the college grads.